Citi analyst Tyle Radke also raised his price targets for MongoDB, Elastic and Snowflake
Citi analyst Tyler Radke downgraded Palantir Technologies (PLTR) to Sell as he believes the stock is "vulnerable" heading into 2021 with the upcoming lockup expiry and an "expected deceleration in growth." Radke, who recommends investors avoid Palantir and MicroStrategy (MSTR), said his top ideas in the space are MongoDB (MDB), Elastic (ESTC), Veeva (VEEV) and Talend (TLND).
'STICKING' WITH SECULAR WINNERS: Looking into the year ahead, Citi analyst Tyler Radke expects to see a continuation of secular trends across data/analytics and vertical software. At the same time, with valuations near peak levels, he is employing a more selective approach toward companies with "clear post-pandemic tailwinds." Radke's top ideas here are MongoDB, Elastic, Veeva and Talend. He is "incrementally cautious" on companies that "may have seen an outsized benefit" in 2020, which could become headwinds in 2021 and 2022. In this context, Radke said that MicroStrategy and Palantir should be "names to avoid."
SELL PALANTIR: Radke downgraded Palantir Technologies to Sell from Neutral with a price target of $15, up from $10. The analyst believes that after a 150% rise in the stock since the September direct listing, the stock is "vulnerable" heading into 2021 with the upcoming expiration of a stock lockup and an expected deceleration in growth. Radke sees risk around the lapping of COVID-19 related contracts, which he says have the potential to become headwinds in the second half of 2021 and into 2022. He is also more skeptical on the Palantir "bull case" in the commercial business, where Radkle says there is optimism that the company's simplified new products can drive an inflection in customer growth. The analyst sees high levels of competition and the lack of investment by Palantir in the "right areas" limiting its success.
TARGETS UPPED: The analyst raised his price target for Elastic to $190 from $160, while keeping a Buy rating on the shares. He sees business trends improving in 2021, as customers that have been more negatively impacted by the Pandemic see IT budges return to normal, and Elastic’s simplified product strategy and expansion-oriented go to market motion make positive impacts.
Radkle also raised his price target for MongoDB to $465 from $354 and kept a Buy rating on the shares. He sees business trends improving in 2021/2022, driven by the impact of several quarters of record net customer adds in Atlas, improving Atlas expansion trends against much easier comps.
Keeping a Neutral rating on the stock, the analyst raised his price target for Snowflake (SNOW) to $325 from $300. Following strong contract signings and RPO growth of 240% year-over-year in the fourth quarter, he has increased visibility on the sustainability of Snowflake's growth rates.
WHAT'S NOTABLE: Palantir has announced that the Army down-selected it to deliver a prototype for the first phase of the Army's Ground Station modernization in support of the Army's Tactical Intelligence Targeting Access Node program. The contract value for this phase is $8.5M, with a potential contract value of approximately $250M over all 4 phases. Palantir was awarded a Phase 1 Project Agreement through an Other Transaction Agreement with Consortium Management Group on behalf of Consortium for Command, Control and Communications in Cyberspace.
PRICE ACTION: In Wednesday morning trading, shares of Palantir have gained about 1.5% to $26.56.